Ask Colin

How long should a moving average be if used for a stop-loss level?

The length of the moving average is going to depend upon your investment plan.

Short term traders might use something around 22-days, which is the number of trading days in a month.

Active investors might use a period that is longer than that. For example, Stan Weinstein's 30 weeks. 20 weeks is also popular.

While I use a 52 week moving average for trend direction, I do not use it as a stop-loss - it would be too slow a lot of the time.

I do not use a moving average for stop-losses myself. I prefer to use the price itself - initially under the accummulation area and later under the troughs of the trend I am trading. This has the advantage of always being related to the trend I am in. The problem with moving averages is that one will work fine on a group of stocks, but will be either too fast or too slow for other stocks. There is a lot of judgement needed to get the right moving average for a specific stock.

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